ARE LABELS TO BLAME FOR THEIR OWN DEMISE?

Or is There More To The Story?

===========================================

By Moses Avalon

“[Music Business] journalism is people who can’t write interviewing people who can’t talk for people who can’t read.” — Frank Zappa (1940 – 1993)

Music biz haters have become annoyingly repetitive about this in blogs and columns: record companies were slow to respond to the internet, that’s why their business is suffering. And the argument has taken on a rather ass-backwards form: since in the mind of many, the internet = freedom, and labels = the plantation, to agree with labels over companies like Apple/iTunes means that you are somehow anti-artist.

Wow. How did we get here? It reminds me of pro Iraq war folk who think that being anti-war is the same as being anti-American or anti-troops. Isn’t being anti-war mean you want troops to stay at home– and live? I guess not. Strange times.

Anyway, implying that labels missed the boat with the internet because label execs couldn’t even operate email is ridiculous and it’s really starting to bug me that I, of all people–someone who has criticized labels for years and fought for artists’ rights–has to now be a label apologist on this issue. But [sigh] they don’t seem to want to help themselves, so, I guess for one day only, I’ll be a labels’ rights activist.

REALITY

Money for labels = money for artists signed to those labels. (In fact, even for artists not signed to labels, because signed artists spending big label cash has a trickle down effect on indie and emerging artists.)

Do artists have to fight for this money? Oh yeah. And hard. But it’s better than fighting with “the internet,” which has no home office or central suggestion box that I can find.

Major labels started looking at the Internet as an opportunity in the late 1990s. They wanted to emulate the film business: music streaming to different sources resulting in a “buy.” Like cable/pay per view. They spent millions on R&D for these models and this is evidenced by memos and minutes at Universal, BMG and Sony.

So, what went wrong? Napster. A tech industry protégé run by people inexperienced in intellectual property.

While labels were still doing all their R&D, the principals of Napster in 1999 wanted labels to give them (emphasis on the word “give”) the rights to “distribute” their catalog. Their perception was that labels didn’t pay royalties to artists and, being very pro-artist, Napster wanted to make sure that artists were paid royalties from their downloads (ironically). But record companies faced two obstacles in obliging the young up-start:

1. Their artists wouldn’t give them permission.

2. Showing favoritism in an emerging area of technology would get them sued.

FIRST, ARTISTS SAID NO.

A fact glossed over by the media when criticizing record companies was that, in 1999-2001 there was barely a single major label recording contract that granted the artist’s permission for “digital distribution” and artists were not willing to give these rights up so easily. Why were artists so stubborn?

Years earlier labels had approached their stable for rights to re-release their music on the new widget: the compact disc. Virtually every artist signed over these rights without receiving any up-front money. They were told that the pay off would be higher royalties because the CD would sell for about $12 instead of the usual $7.99 for an LP in 1979-80.

But in the end, labels ended up charging the artist a “new technology deduction.” This actually lowered their royalties to what they received for LPs. Many artists felt duped and decided this time, they would be “smart” and negotiate. This immutable fact stalled the process for years and cost them both dearly.

Labels could not reveal their venerability to Napster for fear they would do an end run and go directly to the artists. Napster tried anyway. But artists were even less inclined to give these rights to computer geeks, no matter how hip and “pro music” they appeared. And there’s more…

FROM ALBUMS TO SINGLES

Critics claim that labels wanted to sell albums because they deliberately want to dilute their inventory; buy ten crappy songs to get to one good one. Kind of like when a drug dealer steps on the powder.

Ridiculous.

It’s the artist’s managers and lawyers, looking forward to receiving publishing advances that were at the heart of the issue.

Advances to songwriters from publishing deals were based on projected album sales. Switching over to a singles-driven model may sound good from a consumer point of view, but a sudden change would have seriously affected the economic viability of being a professional artist.

Imagine you are an artist and Sony Publishing is going to give you a $500,000 advance based on the fact that Sony was doing an initial pressing of 300,000 albums with 14 songs on it that you wrote. That’s 4,200,000 songs going to print (300,000 albums with 14 songs) worth about 8 cents a piece. Now imagine they hear that Sony is going to try something new: instead of pressing 300,000 they are going to simply post a few tracks and see how many downloads they get.

What?!? This is waaaay too unpredictable a basis to forecast royalties. Which means… no publishing advance–and by the way—no future album advances either. What manager in 1998–2000 was going to let his client sign that deal? None.

It would mean in an industry whose economics was (and still is) based on advances, there would now be very few and the few there were, would be far lower.

DRM: DIGITAL ROAMING MOJO

Due to antitrust concerns, there are limitations to the conversations that a major label can have with another major label or a tech company regarding a standard for digital transmissions. In other words, if you, as a record company, make a deal with one company you could be required to make a deal with all of them. No one in 1999 was ready to do that. There were several companies competing for a “standard.” If record companies sided with Napster’s they could be slapped with an antitrust suit by others who were developing similar services. At the time Microsoft and Apple were exploring copy protection solutions. Napster had none. If you were the majors in 1999 who wouldn’t you be staling Napster until the big boys chimed in? Yes, if you had half a brian.

Between all the various formats and codecs in the making in 1999, labels needed to wait until the tech industry settled on something consistent. We’re still waiting in 2008.

WHO CARES?

When you read the opinions of those who think labels had their heads up their asses, remember that the “progress” that they are preaching would involve EXACTLY this type of world: one where there are no advances and one where almost everything is advertising driven, where all the money is on the back end. That’s the end we usually have trouble collecting from, in case you forgot.

Labels were trying to develop Internet based solutions in a controlled manner. One that would not upset the current economics. Unfortunately, these important factors were lost on Team Napster, whose average executive was barely 25 years old in 1999. And conversely, labels couldn’t appreciate that their precious industry was now in the hands of people who had no patience for red tape or maintaining a standard that was feeding thousands of artists and their families for several decades. This series of meetings ended with Napster feeling dissed.

The rest is well documented elsewhere. Massive litigation and rewriting of copyright laws eventually closed down the free version of Napster. More importantly, labels and Tech Companies had both drawn blood; a wound that has not healed as of this writing.

The music industry missed a chance (if they ever really had one) to partner up with the tech world and now find themselves in a cage match.

For more on this read “The DRM Manifesto” at this link.

Also “All The Rave,” by Joseph Menn. Which gives a detailed view of the rise and fall of Napster.

I hope this clears things up in this conversation and a few bloggers and journalists out there broaden their polarizing views.

Record companies are no less and no more human than tech companies. And tech companies have made their fair share of bad guesses. It’s time to apply an equal standard so that we, as a community can survive and prosper.

If we don’t, we will surely be Apple and Microsoft’s bitch sooner than we think.

Moses

PS: Much of this piece is excerpted from my last book, Million Dollar Mistakes. In there I give more details and interviews with labels execs who were on the inside of this important event.